How to avoid care home fees

Couples who want to protect their estate to pass on to their children can set up a trust to avoid their assets being wiped out by care home fees.

The state meets full long-term care costs only for those with less than £10,000 of assets and income. People cannot be ejected from their home to pay the fees for their spouse's care, but if one partner dies and the surviving spouse then needs to go into care, all their property and assets could be used to pay for care until only £10,000 remains.

But you can prevent care costs swallowing up all your money with some nifty footwork. You will need to alter the basis on which you own your home and draw up a will incorporating a property trust.

Within this type of will, each partner leaves their half of the house in trust for the children (or whoever) but states that they cannot have it while the surviving partner is alive.

Although the surviving partner would have full use of the half of the house in trust, they would not actually own it.

In other words, the local authority cannot get its hands on that half for care cost fees. The terms of the trust are dictated by the couple at the outset, so the surviving partner cannot be thrown out by impatient children, for example.

In order for it to work, you and your partner must own your home jointly as tenants in common. You can alter your deeds accordingly. Unfortunately, a property trust cannot prevent the surviving partner's share of the estate from being used to meet care bills. Neither can it help with inheritance tax planning, but it can go some way to ring fencing some of your hard-earned assets.

'There is no perfect solution, but protecting half your home is better than losing it all,' says Paul King, director of Nottingham- based Blueblazer Legal Group which specialises in property trust wills. But couples must act now,' he warns. 'The documents must be written while they are both alive. If they leave it for the survivor to sort out, it will be too late.'

This sort of will does not restrict you or your partner while you are both alive. It simply means that when one of you dies, the survivor continues to live in the property for life, while their partner's share is held in trust for the children or whoever else they wish to leave it to. And the half of the house protected by the trust will not pass out-side the immediate family if, for example, the surviving spouse remarries.

If only one partner is named on the deeds as owning the property, you will need to add the remaining partner at your local Land Registry. This could incur a fee based on the value of the property.

Drawing up this type of will normally costs between £75 and £250 and is usually tailored to each family situation. It does not matter if you want to move house, as the terms of the trust are flexible.

Everyone's personal circumstances are different, so it is important to think carefully before setting up a property trust will.

Richard Ford, partner at Ford, Gunningham & Co, explains: 'In giving property away, you are actually losing your potential to choose your retirement home. If you do not have enough capital left to produce an income, you will go where you are put rather than where you choose.

'Also once the half share of the property is in the property trust, it may be liable to capital gains tax if it is sold. There is also the danger that the circumstances of the children may change through divorce, bankruptcy or death, and this may produce unexpected results.'

A property trust is designed to protect the home, although there are other types of trust which can protect cash as well. These are called discretionary because the trustees can use their discretion as to when and to whom to release capital.

However, Paul King recommends leaving the cash outright to each other. He says: 'Although this puts the cash within the reach of the local authority, the survivor may need the money to live on, so protecting just the house with a property trust is a safer option.

'It is a balance between protecting your estate and also ensuring that your surviving partner is secure.'